Freight Enhancement Unsustainable: CESTAT Follows Earlier Ruling, Deletes Penalties on Co-Noticees [Read Order]

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal set aside penalties imposed on two co-noticees in a dispute concerning alleged freight suppression and misdeclaration of origin in chemical imports, noting that the foundational order against the main noticees had already been quashed by the Tribunal in an earlier common decision.

The appeals were filed by Chem Trader Tankers Co. Ltd. and another individual noticee, both of whom had been penalised under Sections 112(a) and 114AA of the Customs Act, 1962 pursuant to an order passed by the Commissioner of Customs (Import-II), Mumbai.

In the initial proceedings, the Commissioner confirmed differential freight under Section 28(8), ordered the goods to be confiscated with a redemption option, and penalized the importers and co-noticees for allegedly loading cargo covertly at Iranian ports and hiding the true place of origin.

During the hearing, it was brought up that the same Order-in-Original had previously been thoroughly examined in a previous set of appeals filed by the two importers, Jupiter Dye Chem Pvt. Ltd. and C.J. Shah & Co., in which the Tribunal determined that the Revenue's case lacked supporting evidence in its common order dated May 11, 2023.

According to that ruling, there was insufficient evidence to demonstrate that the ships had made covert port calls in Iran or that the invoice value did not accurately reflect the freight.

The Tribunal had emphasized that increase under Rule 10 of the Customs Valuation Rules could not be justified by simple mathematical reconstruction and that additions to value must have a concrete basis connected to actual freight paid. Based on this logic, the importers' demands for differential duty, confiscation under Section 111(m), and penalties under Sections 114A and 114AA were set aside in full.

The Tribunal, comprising Ajay Sharma (Judicial Member), observed in the current appeals that the Revenue had not provided a stay order or a higher court's rejection of the previous decision. Applying judicial discipline, the Bench determined that the consequential penalties on co-noticees could not continue after the original findings that served as the basis for the criminal action had been revoked.

The Tribunal reaffirmed that the previous ruling had already determined that the Department's case was based on assumptions rather than proof and that the importers had not utilized any incorrect information to support the application of punitive provisions.

Since the confiscation itself had been set aside in the main proceedings, the Tribunal held that penalties under Section 112() afor alleged abetment of improper import and under Section 114AA for alleged use of false documents were unsustainable.

As a result, the impugned order was overturned, and the appeals were allowed with consequential relief.

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